Another wild sell off: Dow sinks 546 points

The Dow tumbled 546 points, or 2.1%, on Thursday following another rollercoaster session. The index briefly turned positive during morning trading before succumbing to heavy selling pressure. At one point the Dow was down 699 points. The Dow has shed 1,378 points over the past two days.

All three major indexes have lost more than 5% this week. That hasn’t happened since March.

“This kind of washout doesn’t get accomplished in a day. Even though yesterday felt traumatic, it tends to be a three-day process,” said Art Hogan, chief market strategist at B. Riley FBR.

The VIX volatility index touched its highest level since February.

One positive is that unlike on Wednesday, the market did not close on the lows of the day. The rebound was helped by fresh reports that President Donald Trump and Chinese leader Xi Jinping have agreed to meet next month at the G-20 summit. Such a meeting could ease fears that the US-China trade war will hurt corporate profits and slow the US economy.

Tech stocks have come under fire because they are some of the riskiest and most expensive parts of the market. Investors fear how these momentum names will hold up in a downturn, particularly as interest rates spike. A proxy for the tech sector had its sharpest plunge in seven years on Wednesday.

“Halloween started early this month for investors,” Ed Yardeni, president of investment advisory firm Yardeni Research, wrote to clients.

The afternoon sell-off comes even though a new report showed that consumer prices rose less than expected in September.

Stocks have turned sharply south in large part because investors are concerned about rising interest rates. As the Federal Reserve raises rates to prevent runaway inflation, investors have been getting out of bonds, driving down their price and driving up their yields. Suddenly, the return on bonds has become competitive with some stocks — particularly risky tech stocks.

Inflation, tariff worries

Some US companies have recently warned about pain from rising costs. Paint company PPG Industries (PPG) spooked investors on Tuesday by saying it’s paying more for chemicals, oil and shipping. Fastenal (FAST), another industrial company, suffered a surprise decline in margins due to spiking freight costs. And the company warned of potential trouble from the US tariffs on China.

Wall Street is getting increasingly nervous about the ongoing trade war between the United States and China. While US growth has remained on track, China’s economy is showing signs of a slowdown. Citing the trade fight, the IMF on Monday lowered its 2019 growth projections for both the US and China.

“The downgrade from the IMF underscores this is a very real threat. It’s really a gamechanger,” said Kristina Hooper, global market strategist at Invesco.

If Trump and Xi officially announce a meeting at the G20 summit, it could help tamp down market fears about the trade war.

Hogan said the problem is that investors “don’t see an exit on the trade war highway. We’re escalating our rhetoric with China.”

Are stocks oversold?

Global markets lost ground overnight. Stock indexes in the United Kingdom, Germany and France all fall by more than 1%. Benchmark indexes in Shanghai and Tokyo closed down 5.2% and almost 4%, respectively. Hong Kong’s market was down over 3%.

There were plenty of other jitters. Gold, which often rises during times of stress, climbed nearly 3%. That hasn’t happened since June 2016. The Fear & Greed Index, a CNN Business gauge of market sentiment, is flashing “extreme fear.” Just a month ago the index was comfortably in “greed” territory.

However, Yardeni is optimistic the market will rebound because corporate profits are robust and no recession is in sight.

“We remain bullish on the outlook for earnings, and expect the market to recover and make new highs going into next year,” Yardeni wrote.